Zumiez Inc. maintained positive earnings trend yet again in second-quarter fiscal 2017 as both top and bottom lines beat estimates. With this, the company delivered positive earnings surprise for the eighth straight quarter. Moreover, sales have topped estimates in six of the past eight quarters.
Following the solid second-quarter results, shares of Zumiez soared 12.9% in the after-market trading session yesterday. Additionally, this Zacks Rank #3 (Hold) stock has advanced 5.2% in the past month, outperforming the industry’s decline of 4.5%. This growth can primarily be attributed to the company’s solid monthly comps performance.
Zumiez posted a loss of 2 cents per share for the quarter, which was narrower than the year-ago quarter’s loss of 3 cents. Moreover, results fared better than the Zacks Consensus Estimate of a loss of 6 cents. The outperformance in the quarter was driven by solid comparable store sales (comps) growth alongside investments in omni-channel capabilities and stringent cost controls. Results were, however, offset by a challenging retail environment with sluggish store traffic.
Net sales advanced 7.8% year over year to $192.2 million, beating the Zacks Consensus Estimate of $190.8 million. The improvement in the top line came on the back of 19 net new store additions since last year and favorable comps.
Quarterly comps grew 4.7%, surpassing the company’s forecasted range 1-3% growth. This marked the company’s fourth straight quarter of positive comps and transaction gains. Further, it reflected significant sequential growth from comps of 1.8% in the fiscal first-quarter.
Comps were boosted by Zumiez’ brand value, combined with management’s efforts to improve omni-channel capabilities; enhance merchandise choices and deliver better sales quality. Further, comps gained from higher transaction volume, somewhat offset by a drop in dollars per transaction. Comps benefited from robust performance of the men’s and junior’s categories, partly negated by lower comps across footwear, hardgoods and accessories.
The company witnessed further acceleration in comps in August and the back-to-school season, as the strong momentum experienced since the middle of last year continued. Consequently, Zumiez reported sales growth of 10.1% to $98.6 million in August. Comps for the four-week period ended Aug 26, 2017, jumped 7.4% compared with a 1.1% drop recorded a year-ago quarter.
Moreover, the company notes that the positive momentum persists with quarter-to-date comps through Labor Day increasing 8.3%. Additionally, September month-to-date comps through Labor Day have grown 11.4%.
In the reported quarter, gross profit jumped 9.1% to about $59.8 million, while gross margin expanded 30 basis points (bps) to 31.1%. The gross margin improvement was backed by store occupancy leverage, partly offset by rise in inventory shrinkage.
Zumiez’s selling, general and administrative expenses increased 8.2% to nearly $60.6 million, while as a percentage of sales, the same remained flat at 31.5%. Consequently, the company posted operating loss of $0.8 million that was narrower than a loss of $1.1 million reported in the same period last year.
As of Jul 29, Zumiez’s cash and marketable securities were $70.7 million, up 35.2% year over year. The upside was driven by cash flow from operations, partly offset by capital expenditures and cash used for Fast Times’ buyout. Total shareholders’ equity at the end of the quarter was $314.5 million.
Further, the company generated $3.8 million as cash flow from operations during the second quarter. For fiscal 2017, the company anticipates capital expenditures in a range of $24-$26 million, which will be primarily used for new store openings and planned remodels.
Management remains pleased with the way the company is progressing toward attaining its near-term goals amid a tough retail landscape. Alongside, the company is undertaking necessary strategies to drive long-term growth. In response to the rapidly changing consumers’ shopping pattern, Zumiez is making significant investments in core areas, to expand business. This is likely to enable the company to enhance brand value and consumers’ experience, which in turn will help it capture market share and counter competition.
Thus, the company remains confident of achieving the top and bottom-line growth in the long run, which is likely to generate greater shareholders value. Further, management issued an encouraging outlook for third-quarter fiscal 2017 based on the continuation of the positive comps momentum.
The company expects net sales for the quarter in the $236-$241 million range, while comps growth is expected in a range of 4-6% growth. Gross margin is anticipated in a band of down 20 bps to increase 20 bps, while consolidated operating margins are projected to range from 7-7.7%. Consequently, the company projects earnings of 43-48 cents per share compared with the year-ago quarter earnings of 43 cents.
Further, the company provided an overall view of its expectations for fiscal 2017. It anticipates comps to remain positive in the fiscal, while the retail environment is likely to be challenged. Moreover, it projects earnings growth for fiscal 2017 based on current expectations. Results for the fiscal are expected to gain from the inclusion of an additional week this year.
In the second-half of fiscal 2017, however, the company anticipates a greater impact from foreign exchange mainly due to the strengthening of the European, Canadian and Australian currencies against the U.S. dollar. This is likely to meaningfully impact sales, expenses and overall profitability due to the relative size and profit margins in international business.
In fiscal 2017, the company plans to introduce 18 new stores, including four in Europe, two in Australia and three in Canada. Of these, the company has opened 11 stores year to date.
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Children’s Place has a long-term EPS growth rate of 9%. Further, the stock has returned 37.2% in a year.
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